MOSCOW (AFP) – A quarter of a century after the fall of the Soviet Union, Russia is finally ready to repay all the foreign debt inherited from the defunct communist empire.
Eager to establish a reputation as a reliable borrower – despite Western financial sanctions over the Ukraine conflict – Moscow announced last week that it would repay $125.2 million (S$175.1 million) of the debt of the Soviet era towards Bosnia and Herzegovina within 45 days.
The payment “completes the settlement of the external public debt of the former USSR, which is a historic event”, Russian Deputy Finance Minister Sergei Storchak said.
In February, Moscow paid Macedonia $60.6 million.
After the collapse of the Soviet Union in 1991, Russia assumed responsibility for its foreign debt of approximately US$70 billion.
This was mainly contracted during the difficult era of perestroika from 1985 to 1991, a period of failed attempts to reform the dysfunctional political and economic system of the USSR.
This commitment proved a painful burden in the 1990s as Russia faced catastrophic economic problems that culminated in a humiliating default on its foreign debt in 1998.
But in 2006 – thanks to a steady influx of petrodollars since the early 2000s – Russia was able to repay its debts to 17 major so-called Paris Club creditor countries.
A payment of more than $20 billion – 95% of the value of all Soviet-era loans – was made eight years after the 1998 default.
Russia has also allowed itself the luxury of canceling the debts of certain countries, Cuba being the latest in 2014.
The remaining debt consisted mainly of “trade” debts resulting from imports of goods to the Soviet Union from Allied countries.
Such debts were formed “in a strange way”, Mr Anatoly Aksakov, head of the parliamentary economic market committee, told the state news agency RIA Novosti.
He wondered how these countries turned out to be creditors of the Soviet Union even though it was “a very rich country”.
In the case of the former Yugoslavia, to which the USSR provided military equipment in exchange for consumer goods, Russia had the delicate task of distributing the debt between the countries resulting from its break-up.
“It’s politically important: Russia has repaid the USSR’s debt to a country that no longer exists,” said Yuri Yudenkov, a professor at the Russian University of Economics and Public Administration.
“It’s very important in terms of reputation: the ability to repay on time, accountability,” he told AFP.
Yudenkov compared that with Kiev refusing to repay a $3 billion loan that Moscow gave to the pro-Russian government of former President Viktor Yanukovych before he was ousted from power in 2014.
Relatively small payments to Macedonia and Bosnia have helped Russia cultivate the image of a no-fault borrower as Western economic sanctions deter foreign investors.
Many analysts had warned that sanctions imposed on Russia’s actions in Ukraine could drain the country’s finances.
But the Kremlin has so far managed to maintain financial stability despite also being hit hard by falling oil prices.
Thanks to drastic cuts in public spending, Russia’s budget deficit remained under control at just 3.6% of GDP last year – and wages, pensions and social benefits continue to flow into the sector public.
Public debt stands at less than 15% of GDP, far less than in most Western countries.
After a few months of turbulence following the imposition of sanctions, Russia has successfully returned to the international financial market.
While rating agencies initially downgraded the country’s outlook, they are now showing growing optimism about Russia’s economic prospects.